Diversification. Everyone wants it, few measure it. We challenge the traditional narrative. Instead of guessing which assets are uncorrelated, we quantify it. Information theory gives us entropy and mutual information as sharper lenses. We use concrete market examples—Indian equity baskets and government securities—to show how these concepts change the diversification discussion. The aim: shift from intuition to analysis. Let’s look at how entropy captures unpredictability, and mutual information flags hidden connections.

A practical demonstration grounds theory. We walk through a simplified Indian equity and bond portfolio. Entropy calculations show how adding assets with unique return profiles increases portfolio unpredictability—in a good way. Mutual information quantifies overlap, so you see when adding another asset doesn’t buy new diversification. Every step is explained, every number tied to real market data.